Coinbase Sues Three States Over Prediction Markets. That’s Not Why the Stock Is Jumping.

Exchange platform Coinbase is expanding into rapidly growing prediction markets. (Michael Nagle/Bloomberg)

Key Points

• Coinbase is suing Michigan, Illinois, and Connecticut to prevent state gambling laws from being applied to prediction markets.
• Coinbase argues prediction markets are under Commodity Futures Trading Commission jurisdiction, not state gaming regulators.
• Coinbase’s stock is down more than 10% this week, while Bitcoin has fallen around 2.5% to $88,000.

Coinbase is suing three states over their efforts to regulate prediction markets, wasting no time joining the legal battle after expanding into the booming space.

The company said it was expanding into prediction markets earlier this week as part of its push to become an “everything exchange.” It’s also rolling out zero-commission stock trading.

It’s already filed lawsuits in Michigan, Illinois and Connecticut to prevent them from “unlawfully” applying state gambling laws to ban companies from offering event contracts. The states have sent cease-and-desist letters to other prediction market operators. Kalshi, Robinhood Markets and Crypto.com are all involved in legal disputes in a number of states.

Coinbase’s Chief Legal Officer Paul Grewal said the company filed the lawsuits in a bid to confirm that “prediction markets fall squarely under the jurisdiction of the Commodity Futures Trading Commission, not any individual state gaming regulator,” in a post on X.

“Prediction markets are fundamentally different from sportsbooks. Casinos win only if you lose and set odds to maximize their profits. Prediction markets are neutral exchanges, indifferent to price, that match buyers and sellers,” he added.

The company’s Illinois lawsuit notes that the state has sent multiple cease-and-desist letters to Kalshi and Robinhood relating to the event contracts. Coinbase did not immediately respond to a request for comment Friday.

The stock is having a bad week, down more than 10% through Thursday’s close coinciding with recent pressure on cryptocurrencies. Bitcoin has fallen around 2.5% this week to $88,000, though it slipped below $85,000 at the end of the U.S. stock market close Thursday.

The overnight rebound is likely the main reason behind Coinbase’s 3% jump in premarket trading, rather than the company’s entry into the regulatory battle over prediction markets.

But the lawsuit does show Coinbase is serious about capitalizing on the boom in such markets, following the success of Polymarket and Kalshi.

Write to Callum Keown at callum.keown@dowjones.com